Japanese yen shrugs as core CPI ticks higher

• Japanese core inflation rises
• US PMIs expected to show little change

The Japanese yen is unchanged on Friday, trading at 149.57.

Japan’s core inflation rises to 2.9%

Japan’s core CPI rose slightly in October to 2.9% y/y, up from 2.8% in September and just below the consensus estimate of 3.0%. The core CPI print excludes fresh food but includes energy. Core CPI has now exceeded the Bank of Japan’s 2% target for 19 consecutive months. Headline inflation jumped to 3.3% y/y, up from 3.0% in September and above the market consensus of 3.2%.

The acceleration in inflation will put further pressure on the BoJ to tighten its ultra-loose policy. There is growing speculation that the BoJ could raise interest rates from -0.1% to zero early in 2024. The BoJ is known to be very tight-lipped and there’s little chance of any communication with the markets with regard to a shift in policy.

What is clear is that any move away from the current policy could cause market turmoil and hurt Japan’s fragile economy. Still, with inflation remaining stubbornly high, a shift in monetary policy is likely only a question of time. The Bank of Japan meets next on December 19th. Once dull affairs that barely made the radar of investors, the meetings are now closely watched on expectations that the BoJ could change policy, which would be a sea-change after years of ultra-loose policy.

The US wraps up the week with the release of manufacturing and services PMIs, with little change expected. Still, the markets will be watching carefully, as the data will provide insights into the strength of the US economy.

The consensus estimates for November stand at 49.8 for manufacturing (Oct: 50.0) and 50.4 for services (Oct. 49.8). The manufacturing sector has been particularly weak, with the PMI indicating declines over most of the past year. If either PMI misses expectations, the US dollar could show stronger movement.

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USD/JPY Technical

• 149.29 and 148.54 are providing support
• There is resistance at 150.22 and 151.25

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